Rent Control Coming to Washington?

There is a widely-held consensus among economists—of both the “left” and “right” of economic thought—that rent control is bad economic policy. Consider these observations of economist Paul Krugman:

The analysis of rent control is among the best-understood issues in all of economics, and among economists, anyway—one of the least controversial. In 1992 a poll of the American Economic Association found 93 percent of its members agreeing that “a ceiling on rents reduced the quality and quantity of housing.” Almost every freshman-level textbook contains a case study on rent control, using its known adverse side effects to illustrate the principles of supply and demand.[1]

Wherever rent control has been implemented, adverse side effects have followed. Rents of uncontrolled apartments go sky-high. Builders fear extension of rent controls and simply stop building new apartments in favor of condominiums, office buildings, and other structures not subject to rent control, exacerbating the shortage of affordable housing. Bitter relationships ensue between landlords and tenants as, with cash flow from rents capped, landlords fail to maintain properties, and seek ever more clever ways to curtail rent controls and get rid of tenants. This leads to a proliferation of government regulations. Economists consider all these adverse side effects of rent control “predictable”, according to Paul Krugman.

Some economists go even further. Rent control is “the most effective technique presently known to destroy a city–except for bombing,” according to a celebrated quote from a prominent Swedish economist.[2]

Even leaders of communist countries have become disenchanted with rent control. “The Americans couldn’t destroy Hanoi, but we destroyed our city by very low rents and controls. We realized that it was stupid and that we must change policy,” Vietnamese revolutionary, diplomat, and politician Nguyen Co Thach has said in a well known quote.[3]

More than nine out of ten economists agree rent control is bad policy. Yet in Washington state a movement is afoot to impose rent controls. Rent control by Washington cities has long been banned under state law.[4] New legislative proposals would lift this ban as to residential rentals.[5] Seattle is widely expected to pass rent control if the state-wide ban is lifted.

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[1] Paul Krugman, Reckonings; A Rent Affair, New York Times (June 7, 2000).